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Most Cryptocurrencies Are Rallying Today -- So Why Are Bitcoin and Ethereum Down?

An investigation specifically targets the two leading cryptocurrencies.

After a pretty rough couple of weeks, most major cryptocurrencies are up on Thursday. That is, except for bitcoin (BTC-USD) and Ethereum (ETH-USD).

A new Justice Department probe into cryptocurrency manipulation was reported today, and while we don't have all of the details, sources have indicated that bitcoin and Ethereum trading are specifically being targeted. Here's a rundown of the news, and what it could mean to cryptocurrencies from a longer-term perspective.

Image source: Getty Images.

Today's cryptocurrency prices

Here's a look at the 10 largest cryptocurrencies by market capitalization and how much each has changed over the past 24 hours. As you can see, all of them are positive for the day, except for bitcoin (BTC-USD) and Ethereum (ETH-USD).

Cryptocurrency Name (Code)

Price in U.S. Dollars

Day's Change

Bitcoin (BTC)

$7,514.30

(2.4%)

Ethereum (ETH)

$581.19

(1.8%)

Ripple (XRP)

$0.62

4.3%

Bitcoin Cash (BCH)

$1,026.70

2.8%

EOS (EOS)

$11.87

9.8%

Litecoin (LTC)

$122.02

1.5%

Stellar (XLM)

$0.28

4.8%

Cardano (ADA)

$0.20

1.3%

TRON (TRX)

$0.07

5.4%

IOTA (MIOTA)

$1.50

5.8%

Data source: www.investing.com. Prices and daily changes as of May 24, 2018, at approximately 12:30 p.m. EDT, and prices are rounded to the nearest cent where appropriate.

A probe into price manipulation of cryptocurrencies has been opened by the U.S. Justice Department, according to a report by Bloomberg. And the report's sources specifically named bitcoin (BTC-USD) and Ethereum (ETH-USD) as two coins prosecutors are looking at. This comes on the heels of several other recent regulatory actions, such as a crackdown on cryptocurrency scams and a stern warning from the chairman of the Securities and Exchange Commission.

The investigation is focusing on a tactic known as "spoofing," where traders enter a wave of orders, which are subsequently cancelled once the orders cause the price of the targeted asset to move up or down. It also focuses on a tactic called "wash trading," which is a term that refers to people trading with themselves in order to create the illusion of market demand for an asset. Lack of regulation and high volatility make cryptocurrencies far more susceptible to these types of fraud than stocks, bonds, and other heavily regulated assets.

Make no mistake -- this is good news

It's no wonder that news of the investigation is causing uneasiness among cryptocurrency investors. After all, there's no way to know at this point just how much price manipulation is going on or how the elimination of these types of manipulative activities could ultimately affect the prices of bitcoin and Ethereum.

However, just like I've written about regulation in general, this is good news for the cryptocurrency industry from a long-term perspective. The potential for manipulation may be a major factor keeping institutional investors away, and most people (cryptocurrency investors or not) would agree that taking steps to eliminate price manipulation schemes is a worthy cause and an essential part of a healthy cryptocurrency market.

Having said that, as the investigation plays out, don't be surprised to see some continued volatility and pressure, especially on bitcoin and Ethereum.

Author

Matt is a Certified Financial Planner based in South Carolina who has been writing for The Motley Fool since 2012. Matt specializes in writing about bank stocks, REITs, and personal finance, but he loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!
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